Dec 28, 2020
The recent bill passed by Congress (Consolidated Appropriations Act [CAA]) finally became law after being signed by President Trump on Sunday, December 27th. It was feared disagreements over individual stimulus amounts and other various provisions deemed “wasteful spending” by the President would lead to a stalemate and ultimately to a pocket veto and subsequent death of the bill. Cooler heads prevailed, however, with businesses and individuals getting another financial shot in the arm. Below is a summary of the major highlights from the 5,600+ page law and the tax implications therein.
Individual Taxpayer Provisions
First and foremost, on the mind of most individuals impacted by COVID-19 are the second wave of stimulus payments and the unemployment benefits extension. Individuals will each be receiving a stimulus check in the amount of $600* ($1,200 per couple) as well as $600 per dependent child, e.g., a family of four will receive $2,400. These benefits will begin to phase-out when AGI reaches $75,000 ($150,000 for couples filing jointly) at a rate of $5 per $100 in excess of AGI thresholds. As with the first round of stimulus, these checks will be tax-free and will likely be reported as advance payment of credits on each taxpayer’s 1040.
*President Trump pushed back on this bill and advocated for stimulus checks of $2,000 per individual but staunch opposition from the Senate tabled these suggestions for what could be yet another stimulus under the next administration.
In addition to the $600 stimulus checks, Congress voted to extend the federal unemployment supplement albeit at a reduced rate of $300 per week (down from $600 under the CARES Act) through March 14, 2021. Along with the unemployment subsidy comes extensions of the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs as well.
Further notable tax provisions as they relate to individuals are as follows:
- Special charitable contribution deductions for non-itemizers of $300 ($600 for married filing joint returns) for the 2021 tax year
- Extended suspension of the 60% charitable contribution limitation through 2021
- Extended deferral period for employee’s share of Social Security tax to December 31, 2021
- Permanent extension of the reduced medical expense deduction floor (7.5% of AGI)
- Ability for lower-income individuals to use 2019 earned income to calculate earned income tax credit and a refundable portion of the child tax credit (helps those who had lower earned income in 2020 due to COVID-19 receive potentially larger refunds)
- Permits rollover of unused amounts in health and dependent care flexible spending arrangements
Business Taxpayer Provisions
The biggest provision of the Consolidated Appropriations Act, 2021 in the business arena was the decision to reverse the IRS position regarding the deductibility of expenses used for PPP loan forgiveness as well as a second wave of PPP loans. Details of these provisions can be found in our recent blog post here. For the purpose of this post, we will address the other main tax provisions for businesses found in the CAA.
The existing Employee Retention Tax Credit (ERTC) was modified retroactive to the beginning of the CARES Act. Before the passage of the CAA, businesses had to choose whether they would take advantage of PPP loan forgiveness OR claim the ERTC. Now, for 2020, businesses can request forgiveness of their PPP loans AND claim the ERTC. Provisions in the law state wages paid for with PPP loan proceeds cannot be used in calculating the ERTC in order to prevent double-dipping but for businesses with enough wages and other expenses to qualify for both, that option now exists. For 2020, the ERTC calculation is the same. The credit is capped at 50% of $10,000 of wages per employee for the year.
The law also provides for an extension of the ERTC into 2021 which increases the credit available to 70% of wages up to $10,000 per employee per calendar quarter. In addition, it raises the number of employees counted when determining relevant qualified wages from 100 to 500, reduces required year-over-year decrease in gross receipts from 50% to 20%, and clarifies that group health plan costs can be considered qualified wages EVEN WHEN no other wages are paid.
Other notable business provisions include:
- Extension of Families First Coronavirus Response Act (FFCRA) paid sick leave and expanded FMLA sick leave tax credits through March 31, 2021
- Full expensing of “restaurant” meals purchased in 2021 and 2022 provided other requirements for deductibility are met
- Five-year extension of the Work Opportunity Tax Credit (WOTC)
- Five-year extension of the employer credit for paid family and medical leave
- Extended suspension of the corporate 60% charitable contribution limitation through 2021
Due to the sheer volume of text in the Consolidated Appropriations Act, 2021, it is impossible to capture everything in this post. As always, please contact your William Vaughan adviser to discuss how we can help you navigate the myriad of provisions provided for by this law to best serve you and your business.
By: Jon Floering, CPA
Dec 14, 2020
Under the Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law earlier this year, businesses were provided the option to delay paying the employer portion of the Social Security payroll taxes on wages paid for the period from March 27, 2020, through Dec. 31, 2020. As we close on 2020, now is the time to set reminders for the following as this provision is set to expire:
Updating your payroll deductions for 2021 – If you elected to defer your payroll taxes, you will want to ensure your employer portion of withholdings has been reset for the new year. If you work with a payroll provider, connect with them to make sure you have stopped deferring. For those organizations who manage payroll internally, again, double check your deferral has ceased. In addition, you will want to make sure your fourth-quarter Form 941 (due January 31, 2021) reflects what you deferred.
Due dates for repayment – Any 2020 deferred payroll tax amounts are due to the federal government in two installments.
- One-half at the end of December 31, 2021.
- The remaining half at the end of December 21, 2022.
While employers are not required to submit their first payment of deferred taxes until December 2021, the CARES Act does not prohibit employers from early payment.
Income tax deduction – Employers who have opted to defer may be surprised to learn that these accrued payroll taxes, while in the books for 2020, may not be deductible from their taxable income until later. Accrual basis taxpayers seeking to claim deductions on their 2020 returns for deferred payroll tax liabilities incurred prior to Dec. 31, 2020, may be able to do so if they pay their deferred payroll taxes by Sept. 15, 2021. This may be particularly appealing to taxpayers generating losses in 2020 that will be carried back to higher tax years.
Planning ahead is key! To learn more about how this payroll tax deferral may impact your business, please contact your William Vaughan Company advisor today.
Oct 26, 2020
On Friday, October 23, Ohio Governor Mike DeWine approved several new programs aimed to provide much-needed relief to small businesses, restaurants/bars, and low-income families negatively impacted by COVID-19. These programs include:
Small Business Relief Grant – This program will designate up to $125 million of funding received by the State of Ohio from the federal CARES Act to provide $10,000 grants to small businesses with no more than 25 employees to help them through the current crisis. The program will be administered by the Ohio Development Services Agency. If you are a small business with no more than 25 employees, you can apply for one of the first-come, first-serve grants starting on November 2, 2020. Businesses can use the grants to pay for various expenses including mortgages, rent, utilities, salaries, health care premiums, business supplies, and other related operational costs. Click here to review the terms & conditions of the program. Ineligible businesses include, but are not limited to nonprofits, private schools, clubs, etc.
The Bar and Restaurant Assistance Fund – This program is designed to assist Ohio’s on-premise liquor permit holders. Governor Mike DeWine has designated $37.5 million of funding received by the State of Ohio from the federal CARES Act to provide $2,500 assistance payments to on-premise liquor permit holders to help them through the financial difficulties experienced during the COVID-19 pandemic. These permit holders have not been able to fully use their liquor permit and it’s had an impact on their business. The program, which will begin accepting applications on November 2, 2020, will be administered by the Ohio Development Services Agency. Click here for more information on how to apply.
Home Relief Grant – Also accepting applications starting November 2, 2020, is the Home Relief Grant Program which will help eligible Ohioans who are behind on rent, mortgage, and water and/or sewer utility bills catch up on past payments back to April 1, 2020, and provide additional assistance through December 30, 2020. Ohioans can apply for assistance through their local Community Action Agency. Click here for more information on how to apply.
As always, we are here to provide assistance. If you have immediate questions or concerns, please reach out to your William Vaughan Company advisor today or call us at 419.891.1040
Apr 03, 2020
In light of the novel coronavirus (COVID-19) global pandemic, many small-to-medium-sized businesses are struggling to manage revenue losses amid prolonged economic uncertainty. To offset the pandemic’s financial impacts, Congress has passed several stimulus bills, including the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes provisions that can provide for increased cash flow as well as tax savings. Businesses should quickly consider how these provisions could help their companies during this uncertain time to ensure they are maximizing available benefits.
SBA Paycheck Protection Program
This $350 billion forgivable loan program, included in the CARES Act, significantly expands which organizations are eligible for Small Business Administration (SBA) loans. For organizations facing financial strain as a result of COVID-19, these loans can help offset a variety of costs.
What can the loan be used for?
The loan can cover costs including payroll, the continuation of health care benefits, employee compensation (excludes compensation in excess of $100,000 on an annual basis), mortgage interest obligations, rent or lease payments, utilities, and interest on debt incurred before the covered period.
Who is eligible for the program?
To qualify for the program, businesses must have either fewer than 500 employees (including full time, part-time and “other” employees), meet the SBA’s size standards, or have less than $15 million of tangible net worth and less than $5 million of average net income in the last 2 years. There are some special eligibility rules for businesses in the hospitality and dining industries.
How much can a business borrow?
The maximum amount for these loans is two times the average total monthly payroll costs, or up to $10 million. The interest rate may not exceed 4%. Businesses can also defer payment of the principal, interest, and fees for six months to one year.
Is there loan forgiveness?
Yes, provided your business meets certain conditions. Your business will be eligible to apply for loan forgiveness equal to the amount you spent during an eight-week period after the loan closing date on:
- Payroll costs
- Interest on mortgages
- Payments of rent
- Utility payments
Principal payments of mortgage payments will not be eligible for forgiveness.
How do you apply?
Applications and underwriting are handled by SBA-approved banks. While documentation requirements will vary between institutions, we would expect them to include the following:
- Current personal financial statement
- Latest available personal tax return
- Latest available business tax return
- Latest available internal 2019 YE financials
- YTD internal 2020 financials
- A spreadsheet detailing the following:
- List of all full-time employees with eight weeks salary + payroll taxes
- Cost of two months of rent with copies of leases
- Cost of two months of mortgage interest with a copy of loan payments
- Cost of two months of utility costs with a copy of utility payments
What is required to be eligible?
Borrowers will need to include a Good-Faith Certification that:
- The loan is needed to continue operations during the COVID-19 emergency.
- Funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments.
- The applicant does not have any other application pending under this program for the same purpose.
- From February 15, 2020, until December 31, 2020, the applicant has not received duplicative amounts under this program.
Are there any other considerations to be aware of?
- Given these very limited requirements for borrowers, we may see additional guidance from the SBA on how banks should be underwriting these loans.
- Additionally, the CARES Act does not appear to have overridden the SBA’s “affiliation” rules. Entities are considered “affiliates” when they are controlled by or under common control of another entity. This classification generally includes private equity owners. Business cannot exceed the size thresholds for either the primary industry of the business alone or the industry of the business and its affiliates, whichever is greater. For groups of affiliates that operate in different industries—a typical case for private equity portfolio companies—industry code is based on the primary income-producing entity. However, there is some ambiguity in the text of the CARES Act, so additional guidance may be forthcoming.
Employee Retention Credit
The CARES Act provides eligible employers with a refundable credit against payroll tax liability.
How much does the credit cover?
The credit is equal to 50% of the first $10,000 in wages per employee (including the value of health plan benefits).
Who is eligible for the credit?
Eligible employers must have carried on a trade or business during 2020 and satisfy one of two tests:
- Business operations are fully or partially suspended due to orders from a governmental entity limiting commerce, travel, or group meetings.
- A year-over-year (comparing calendar quarters) reduction in gross receipts of at least 50% – until gross receipts exceed 80% year-over-year.
For employers of more than 100 employees, only wages for employees who are not currently providing services for the employer due to COVID-19 causes are eligible for the credit. For employers of 100 or fewer employees, qualified wages include those for any, regardless of if the employee is providing services.
Employers receiving a loan under the SBA Paycheck Protection Program are not eligible for this credit.
Delay of Employer Payroll Taxes
The CARES Act postpones the due date for employers and self-employed individuals for payment of the employer share of taxes related to Social Security.
When are the deferred payments due?
The deferred amounts are payable over the next two years – half due December 31, 2021, and half due December 31, 2022.
Who is eligible for the deferral?
All businesses and self-employed individuals are eligible. However, employers who receive a loan under the SBA Paycheck Protection Program and whose indebtedness is forgiven are not eligible for the payroll tax deferral.
How We Can Help
Small to medium-sized businesses have many potential avenues—including the SBA loan program and payroll tax incentives—to help offset costs during this uncertain time. However, navigating the complex loan application process is a daunting task. The payroll tax provisions in the CARES Act interact with the SBA loan provisions, adding to the complexity.
In the immediate term, we can assist in analyzing which approach will be the most beneficial for your employees and your company. Those seeking SBA loans will need to move quickly to get their loans approved and funded. We can help you navigate the required paperwork and help organize the necessary information in an expedited manner—so you can boost your cashflow ASAP.
In addition to maximizing these available options, there are also beneficial income tax provisions to claim on income tax returns, including 2019 returns. We can assist companies in determining possible cash tax refunds through net operating loss (NOL) carrybacks and quick refunds of 2019 taxes already paid. Contact your William Vaughan Company advisor today!